Molycorp Tumbles 14% on First Day After Reducing Rare-Earth Stock Offering

By Lee Spears and Kristen Scholer -
Jul 29, 2010

Molycorp Inc., owner of the world’s
largest non-Chinese deposit of rare-earth metals, declined in
its first day of trading after chopping the size of its initial
public offering by 18 percent.

Shares of the Greenwood Village, Colorado-based company
lost 8.2 percent to $12.85 in U.S. composite trading. Molycorp
sold 28.13 million shares at $14 each after its underwriters
failed to attract enough buyers at $15 to $17 apiece, according
to Bloomberg data. The mining company’s owners purchased about
8.9 percent of the shares available in the IPO.

Molycorp will use the $394 million in IPO proceeds to fund
plans to restart operations at a mine that holds deposits of
rare-earth metals used to make magnets for everything from smart
bombs to hybrid cars. The producer, which hasn’t made a profit
since acquiring the site two years ago, will compete with
Chinese companies that currently supply 97 percent of the metals
globally, according to its regulatory filing.

“It seems like a lot of money to ask,” said Robert Auer,
a manager at Indianapolis-based SBAuer Funds LLC, which oversees
about $200 million. “It’s a bet on something so unknown, and in
this market where there’s fierce competition for dollars, there
may be better buys.”

Morgan Stanley and JPMorgan Chase & Co. in New York led the
company’s offering, while Molycorp turned to Jones Day in
Cleveland for legal advice.

Neodymium, Ytterbium

Molycorp’s mine near Mountain Pass, California, once met
almost all the world’s rare-earth metals demand before closing
down eight years ago as China, which has the world’s biggest
deposits, increased low-cost production.

The mine may yield 19,050 metric tons of rare-earth oxides
annually at full production, equal to 38 percent of the amount
that China exported last year, Molycorp’s filing with the
Securities and Exchange Commission showed. The site, about 60
miles southwest of Las Vegas in the Mojave Desert, may lose
money for two more years before becoming profitable.

The company’s first-quarter net deficit widened 38 percent
to $7.75 million from a year earlier after selling its
stockpiles at a loss. It lost $28.6 million in 2009.

The rare-earth elements are 17 chemically similar metals,
such as lanthanum, cerium, neodymium and ytterbium. They are
used in magnets for everything from cell phones and electric
cars to guided missiles and targeting systems for tanks.

About 80 percent of magnets made from neodymium are
produced in China, with most of the remainder coming from Japan.
Almost none are produced in the U.S.

Existing Owners

Molycorp’s biggest shareholders include private equity
firms Resource Capital Funds of Denver and Pegasus Capital
Advisors in New York. No existing stockholders sold shares in
the IPO, and owners such as Resource Capital bought 2.5 million
of the shares in the offering, a filing showed.

Four IPOs by U.S. companies were postponed, delayed or
reduced in size this week after three of the previous four
companies raising money through initial share sales convinced
buyers to pay more than they originally sought.

SurgiVision Inc., the Memphis, Tennessee-based developer of
medical equipment and software for magnetic resonance imaging,
postponed its IPO yesterday after cutting the size by 40
percent. Trius Therapeutics Inc., the San Diego-based developer
of antibiotics being taken public by Citigroup Inc. of New York,
has twice delayed its $84 million sale this week.

“You have an environment where a lot of companies are
going public that shouldn’t be because they aren’t ripe yet,”
said Ed Butowsky, managing director at Chapwood Capital
Investment Management LLC in Addison, Texas. “It highlights how
unstable some of these companies going public are.”